Eurozone crisis laps at Britain's door

Who bails out the "bailer outers"? That's the question that increasingly troubles markets as the European authorities attempt to force their "rescue package" on an unwilling Ireland. Some of those asked to put their hands in their pockets – notably Portugal, Spain and Italy – don't look too creditworthy themselves, and there is plainly a significant risk that they too will run into funding difficulties if forced to ride to the rescue the celtic tiger.

The €750bn joint European/IMF facility might be just about capable of bankrolling Ireland and Portugal, but if Spain were the next shoe to fall, it would overwhelm not just the willingness but the capacity of other countries to shore up the periphery.

For Ireland, the problems are quite specific to the republic's banking sector, which with €1.3 trillion of liabilities, is out of all proportion to the size of the underlying economy. If this particular boil could be lanced, the country would be half way there to solving its fiscal crisis.

That's why if the Irish are to be forced to agree the humiliation of a bailout, they'd like it to be focused on further recapitalisation and funding support for the beleaguered banking system. A more general bailout, a la Greek, with fiscal and structural conditions attached, remains politically unacceptable, especially if it involved surrender of Ireland's beloved low corporation tax regime.

I'll be writing about all this at greater length in my column for tomorrow's print edition of the Daily Telegraph, where I'll also be exploring the impact of this unfolding disaster story on Britain.

The temptation to feel schadenfreude at Europe's travails should be resisted, for a disorderly disintegration of the euro would not just be an economic catastrophe for the countries directly affected by it, but also for those like the UK who depend on demand from Europe to sustain their own growth prospects.

An unravelling of the euro is most unlikely to be economically benign. The UK's own economic recovery would be further jeopardised, and with it the Coalition's plans for deficit reduction. The knock-on consequences of illness in the eurozone, were it to become terminal, would be pretty debilitating for us too. It is therefore in Britain's interests as well as Europe's that this latest outbreak of crisis is resolved in an orderly fashion.